CONSOLIDATED ANNUAL FINANCIAL STATEMENTS AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
DIRECTORS REPORT The directors present their report on the consolidated entity (referred to hereafter as the group) consisting of QIC Limited and the entities it controlled at the end of, or during, the year ended. Directors The following persons were directors of QIC Limited during the whole of the financial year and up to the date of this report unless stated otherwise: Mr D R Luke (reappointed: 1 October ) Mr J C Battams Ms G Brown (appointed: 15 December ) Ms S A Desmarchelier (appointed: 1 October ) Mr S J P Dunne Mr P A Gallagher Mr A E King (reappointed: 1 October ) Mr G B Murdoch Ms A J P Staines Mr B C Bowton (term ended: 30 September ) Ms G M Pemberton (term ended: 30 September ) Principal activities During the year the principal continuing activities of the group consisted of providing investment management services. Dividends Dividends paid or declared by the group since the end of the previous financial year were: Review of operations The profit from ordinary activities, after related income tax expense, amounts to $61.1 million (: $62.4 million). Significant changes in the state of affairs Significant changes in the state of affairs of the group during the financial year were as follows: On 19 September, the Australian Financial Services Licences for the following entities were cancelled; QIC Retail Pty Ltd, QIC Infrastructure Management No. 2 Pty Ltd, QIC Investments No. 1 Pty Ltd and QIC Investments No. 3 Pty Ltd. The entities were then appointed as Authorised Representatives under the Australian Financial Services Licence of QIC Private Capital Pty Ltd. On 19 September, QIC Limited withdrew eligible undertakings with the following entities: Entity Agreement date Amount QIC Retail Pty Ltd 27 February 2015 $3.5 million QIC Infrastructure 27 June $1.0 million Management No. 2 Pty Ltd QIC Investments 27 June $3.0 million No. 1 Pty Ltd QIC Investments No. 3 Pty Ltd 25 June 2014 $150,000 The assets and liabilities of QIC (UK) Management Limited were transferred to another QIC subsidiary, QIC European Investment Services Limited on. QIC (UK) Management Limited will remain dormant and registered. Dividends provided for and declared 41,089 62,424 1 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
Matters subsequent to the end of the financial year No other matters or circumstances have arisen since that have significantly affected, or may significantly affect, the group s operations, the results of those operations, or the group s state of affairs in future financial years. Likely developments and expected results of operations In February and March, QIC US Investment Services Inc., a wholly owned subsidiary of QIC US Management Inc., executed two separate non-binding Heads of Terms between a prospective investor and an existing joint venture partner, for the proposed acquisition of the joint venture partner s interest in a number of US shopping malls. In June, a master transaction agreement was signed with the joint venture partner. This agreement is subject to finalising contractual arrangements with the prospective investor. Coupled with this transaction is the intention for QIC Properties US, Inc. to assume delivery of property level services. It is currently unknown what the financial impacts of this transaction will be. Company secretary Mr D E Clarke and Mr W T Burton are the company secretaries. Mr Clarke is a barrister and solicitor of the Supreme Courts of Queensland, New South Wales, Victoria and the High Court of Australia. Mr Burton is a solicitor of the Supreme Court of Queensland and the High Court of Australia. Meetings of directors The numbers of meetings of QIC Limited s board of directors and of each board committee held during the year ended and the numbers of meetings attended by each director were: Full meetings of directors Meetings of committees Audit Committee Risk Committee HR and Remuneration A B A B A B A B Mr D R Luke (1) 8 8 6 6 5 5 5 5 Mr J C Battams 8 8 5 6 4 5 Ms G Brown (2) 4 4 Ms S Desmarchelier (3) 5 5 1 1 Mr S J P Dunne 8 8 3 5 Mr P A Gallagher 8 8 6 6 5 5 5 5 Ms A E King 6 8 5 5 Mr G B Murdoch 6 8 6 6 5 5 3 5 Mr A J P Staines 8 8 4 6 5 5 Mr B C Bowton (4) 2 3 3 4 1 2 Ms G M Pemberton (4) 3 3 3 4 2 2 1 2 A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year (1) = Mr Luke attended meetings of the Audit Committee and Risk Committee in an ex-officio capacity (2) = Appointed 15 December (3) = Appointed 1 October, appointed to HR and Remuneration Committee on 14 February (4) = Term ended 30 September QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 2
DIRECTORS REPORT Insurance of officers During the financial year QIC Limited, the parent entity, paid insurance premiums to insure the directors and officers of the group. Further disclosure of the details of the policy, including the nature of the liability covered or the premium paid, is prohibited by the terms of the contract. Environmental regulation The group s operations are not subject to any particular or significant environmental regulation under a law of the Commonwealth or of a State or Territory in Australia. Shares under option No options over issued shares or interests in the company or controlled entities were granted during or since the end of the financial year and there were no options outstanding at the date of this report. Auditor s independence declaration The auditor s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 4. Rounding of amounts The group is of a kind referred to in ASIC Corporations Instrument /191, issued by the Australian Securities and Investments Commission. In accordance with that Instrument, amounts in the directors report and financial report have been rounded to the nearest thousand dollars. This report is made in accordance with a resolution of directors. Mr D R Luke Chairman Brisbane 28 August 3 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
AUDITOR S INDEPENDENCE DECLARATION To the directors of QIC Limited This auditor s independence declaration has been provided pursuant to s.307c of the Corporations Act 2001. Independence Declaration As lead auditor for the audit of QIC Limited for the year ended, I declare that, to the best of my knowledge and belief, there have been (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. Brendan Worrall Auditor-General Queensland Audit Office Brisbane QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 4
CONTENTS Consolidated statement of profit or loss and other comprehensive income...06 Consolidated statement of financial position...07 Consolidated statement of changes in equity...08 Consolidated statement of cash flows...09 Notes to the consolidated financial statements...10 A BASIS OF PREPARATION... 10 A1 Reporting entity... 10 A2 Basis of accounting and measurement... 10 A3 Principles of consolidation... 10 A4 Functional and presentation currency... 10 A5 Foreign currency translation... 10 A6 Accounting estimates and judgements... 10 B PERFORMANCE FOR THE YEAR... 11 B1 Revenue... 11 B2 Taxation... 13 C ASSETS AND LIABILITIES... 16 C1 Cash and cash equivalents... 16 C2 Reconciliation of cash flow from operating activities... 17 C3 Receivables... 18 C4 Held-to-maturity investments... 19 C5 Financial assets at fair value through profit or loss... 20 C6 Other financial assets... 21 C7 Property, plant and equipment... 22 C8 Intangible assets... 23 C9 Payables... 23 C10 Borrowings... 24 C11 Contingent liabilities... 24 C12 Commitments... 25 C13 Financial risk management... 26 D EMPLOYEE BENEFITS... 30 D1 Employee benefits... 30 D2 Key management personnel...32 E CAPITAL STRUCTURE... 37 E1 Issued capital...37 E2 Dividends...37 E3 Retained earnings...37 F GROUP STRUCTURE... 38 F1 Parent entity disclosures... 38 F2 Controlled entities... 40 F3 Related party information...41 G OTHER... 42 G1 Subsequent events...42 G2 Remuneration of auditors...42 G3 New accounting standards...42 G4 Standards and interpretations issued but not yet effective... 43 Directors declaration...44 Independent auditor s report...45
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended Notes Revenue from continuing operations B1 343,813 336,198 Gain on financial assets at fair value through profit or loss 3,500 87 Total revenue and other income 347,313 336,285 Employee benefits expense 181,366 181,040 Professional services 23,172 17,053 Operating lease costs 12,704 11,983 Travel 10,371 8,447 Depreciation and amortisation expense C7, C8 6,355 5,860 Computer operating costs 5,783 4,148 Information and research services 3,468 3,457 Staff development and recruitment 3,159 3,390 Communication expenses 2,016 1,845 Insurance 1,693 1,869 Foreign exchange losses G2 519 118 Auditors' remuneration 393 450 Net loss on disposal of property, plant and equipment 107 36 Other expenses 7,518 8,364 Total expenses 258,624 248,060 Share of profit/(loss) from associates 32 47 Profit before income tax 88,721 88,272 Income tax expense B2 27,632 25,848 Profit after income tax 61,089 62,424 Other comprehensive income Item that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations A5 (238) Other comprehensive income for the year (net of tax) (238) Total comprehensive income for the year attributable to owners 61,089 62,186 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes on pages 10 to 43. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 6
CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at Notes ASSETS Current assets Cash and cash equivalents C1 14,123 4,492 Receivables C3 135,803 131,545 Income tax receivable B2 1,057 500 Financial assets at fair value through profit or loss C5 93,755 111,228 Prepayments 6,532 3,389 Total current assets 251,270 251,154 Non-current assets Financial assets at fair value through profit or loss C5 29,714 52,096 Property, plant and equipment C7 13,859 12,977 Intangible assets C8 12,315 8,414 Deferred tax assets B2 40,052 38,871 Receivables C3 835 Held-to-maturity investments C4 300 Other financial assets C6 2,343 5,207 Total non-current assets 99,418 117,565 Total assets 350,688 368,719 LIABILITIES Current liabilities Payables C9 24,459 27,339 Income tax payable B2 798 18,897 Dividends E2 41,089 62,424 Employee benefits D1 84,395 81,850 Provisions 803 743 Deferred revenue B1 21,818 10,800 Total current liabilities 173,362 202,053 Non-current liabilities Employee benefits D1 23,334 32,178 Provisions 977 1,573 Borrowings C10 100 Total non-current liabilities 24,411 33,751 Total liabilities 197,773 235,804 Net assets 152,915 132,915 EQUITY Contributed equity E1 37,475 37,475 Retained earnings E3 115,440 95,440 Capital and reserves attributable to owners of QIC Limited 152,915 132,915 Total equity 152,915 132,915 The above consolidated statement of financial position should be read in conjunction with the accompanying notes on pages 10 to 43. 7 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended Notes Attributable to owners of QIC Limited Contributed equity Other reserves Retained earnings Total equity Balance at 1 July 2015 37,475 238 95,440 133,153 Profit after income tax 62,424 62,424 Other comprehensive income (238) (238) Total comprehensive income for the year (238) 62,424 62,186 Transactions with owners in their capacity as owners: Dividends provided for or paid E2 (62,424) (62,424) Balance at 30 June 37,475 95,440 132,915 Balance at 1 July 37,475 95,440 132,915 Profit after income tax 61,089 61,089 Other comprehensive income Total comprehensive income for the year 61,089 61,089 Transactions with owners in their capacity as owners: Dividends provided for or paid E2 (41,089) (41,089) Balance at 37,475 115,440 152,915 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes on pages 10 to 43. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 8
CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended Notes Cash flows from operating activities Receipts from customers 389,688 363,621 Payments to suppliers and employees (309,163) (272,334) Distributions received 1,673 2,048 Gain/(loss) on cash and cash equivalents (153) 240 Interest received 95 82 Income taxes paid (47,490) (50,782) Net cash provided by operating activities C2 34,650 42,875 Cash flows from investing activities Payments for property, plant and equipment C7 (5,398) (2,109) Payments for intangible assets C8 (6,009) (4,536) Payments for financial assets at fair value through profit or loss (33,872) (25,831) Proceeds from sale of financial assets at fair value through profit or loss 52,760 9,159 Distributions received from investments 2,261 890 Payments for held-to-maturity investments (300) Proceeds from other financial assets 2,896 Proceeds from sale of property, plant and equipment 12 6 Dividends received 98 51 Interest received 75 87 Net cash provided by/(used in) investing activities 12,523 (22,283) Cash flows from financing activities Proceeds from borrowings 100 Dividends paid to shareholders E2 (62,424) (56,488) Net cash used in financing activities (62,324) (56,488) Net decrease in cash and cash equivalents (15,151) (35,896) Cash and cash equivalents at the beginning of the financial year 95,686 131,529 Effects of exchange rate changes on cash and cash equivalents 164 53 Cash and cash equivalents at end of year C1 80,699 95,686 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes on pages 10 to 43. 9 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
A Basis of Preparation A1 Reporting entity These financial statements are the financial statements of the consolidated entity consisting of QIC Limited and its subsidiaries. QIC Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: QIC Limited Level 5 Central Plaza Two 66 Eagle Street Brisbane QLD 4000 QIC Limited is a for-profit entity and is primarily involved in the provision of investment management services. A2 Basis of accounting and measurement These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board, the provisions of the Government Owned Corporations Act 1993 and the Corporations Act 2001. The financial statements of the QIC Limited group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements have been prepared under the historical cost convention, except where otherwise stated. The financial statements were authorised for issue by the directors on 28 August. The directors have the power to amend and reissue the financial statements. A3 Principles of consolidation The financial statements incorporate the assets and liabilities of all subsidiaries of QIC Limited ( group and parent entity ) as at and the results of all subsidiaries for the year then ended. QIC Limited and its subsidiaries together are referred to in this financial report as the group or the consolidated entity. Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. A4 Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the group s functional currency. All amounts have been rounded to the nearest thousand, unless indicated otherwise. A5 Foreign currency translation (i) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit and loss and other comprehensive income. (ii) Group companies The results and financial position of the group that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities are translated at the closing rate at the balance date income and expenses are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and all resulting exchange differences are recognised in the consolidated statement of profit or loss and other comprehensive income. A6 Accounting estimates and judgements The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in the following notes: Accounting estimates and judgements Note Page Revenue recognition B1 11 Income taxes B2 13 Employee benefits D1 30 Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the group and that are believed to be reasonable under the circumstances. The financial information for the parent entity is disclosed in note F1 and controlled entities in note F2. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 10
B Performance for the Year This section provides the information that is most relevant to understanding the financial performance of the group during the financial year and, where relevant, the accounting policies and the critical judgements and estimates made. B1 Revenue From continuing operations Management, performance and other fees 322,470 315,830 Product administration fees Related parties 12,234 11,684 Distribution income 3,939 2,945 Interest income 182 177 Dividend income 98 51 Other revenue 4,890 5,511 Total revenue from continuing operations 343,813 336,198 Recognition and measurement Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and rebates. Revenue is recognised on the following basis: (i) Management, performance and other fees Management fees are recognised on an accruals basis in line with client agreements, net of the amounts of goods and services tax payable. Performance fees and rebates are recognised on an accruals basis when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the group. Performance fees are subject to specific criteria being met over the performance period in compliance with individual client contracts. Revenue may not be recognised where the performance criteria is subject to uncertain future events outside the control of the group. Where the achievement of criteria is probable but not virtually certain a contingent asset is disclosed. Some performance fees are subject to clawback. Performance fee clawbacks are recognised on an accruals basis when there exists a present obligation, the clawback amount can be reliably measured and it is probable that there may be a future outflow of economic benefits from the group. A liability is recognised as deferred revenue and a reduction in revenue recorded. (iii) Dividend income Dividends are recognised as revenue when the right to receive payment is established. (iv) Distribution income Distributions are recognised on an entitlements basis. (v) Interest income Interest income is recognised using the effective interest method. (vi) Other revenue Other revenue primarily includes consulting fee revenue and product related cost recoveries. (vii) Offsetting Revenue and expenses are offset in the financial statements of the group where offsetting the transactions accurately reflects the substance of the transaction and where not offsetting would detract from the ability of users to clearly understand the nature of the transaction and operations of the group. The group has offset revenue and expenses in relation to product and client related costs of $76.6 million (: $59.4 million) where the group principally acts as agent. (ii) Product administration fees Related parties Product administration fees are recognised on an accruals basis at agreed amounts, net of the amounts of goods and services tax payable. 11 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
B Performance for the Year (continued) B1 Revenue (continued) Recognition and measurement (continued) Key estimates and judgements (i) Performance fees contingent asset Some performance fees are subject to specific criteria being met over the performance period in compliance with individual client contracts. If the performance criteria are not met over the performance period, no performance fee is receivable. At year end, based on performance to date, there remains a significant degree of uncertainty over whether the performance targets will be achieved over the performance periods for some performance fee arrangements. Achievement of these targets is influenced by a number of factors over which the group has limited control, including the underlying performance of international markets, movements in interest rates and other risk factors. Revenue is not recognised where the performance criteria are subject to uncertain future events outside the control of the group. While the achievement of criteria is not virtually certain, management s judgement is that an inflow of economic benefits is probable and a contingent asset exists. Due to the degree of uncertainty, at it is not possible to estimate the financial effect of the contingent asset. (ii) Performance fees deferred revenue Performance fee clawbacks are potentially payable on a number of performance fee agreements. A clawback is payable where performance of a product falls below benchmark performance over the clawback period. A statistical analysis of the changes in performance fees over time for particular asset classes has been undertaken, resulting in a reasonable data set to estimate the likelihood of negative out-performance and amount of the potential clawback. Other considerations include excess returns over the benchmark to be reversed before a clawback is incurred. Each asset class subject to a clawback has been assessed under a consistent methodology with inputs relative to the individual client contracts. There are a number of factors that could influence performance including changes in the competitive environment and client agreements, movements in interest rates and other risk factors. At, a liability of $21.8 million (: $10.8 million) is recognised as deferred revenue. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 12
B Performance for the Year (continued) B2 Taxation (i) Reconciliation of income tax expense Profit before income tax 88,721 88,272 Tax expense at the Australian tax rate of 30.0% (: 30.0%) 26,616 26,482 Non-deductible entertainment 81 67 Non-deductible sundry items 838 298 Effect of tax rates in foreign jurisdictions (35) (37) Tax offset for franked dividends and foreign income (82) (265) Adjustments for current tax of prior periods 214 (697) Income tax expense 27,632 25,848 Current tax on profits for the year 28,692 43,743 Deferred tax (1,181) (17,601) Adjustments for current tax of prior periods 121 (294) Adjustments for current tax of prior periods 27,632 25,848 In the prior year, the 2015 income tax return of the group was amended to include research and development tax claims. The taxation effect of the research and development claims of $1.0 million is included in the adjustments for current tax of prior periods. Income tax receivable Income tax receivable in foreign jurisdictions is not able to be offset against income tax payable in Australia. The US entities within the group are in an income tax receivable position and this has been recorded separately. 13 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
B Performance for the Year (continued) B2 Taxation (continued) (ii) Movement in deferred tax balances Net balance at 1 July Charged to P&L Net balance at 30 June DTA DTL Employee benefits 33,491 (1,140) 32,351 32,351 Property, plant and equipment 1,178 406 1,584 2,367 (783) Performance fees 2,938 3,408 6,346 6,346 Other 1,264 (1,493) (229) 613 (842) Tax assets/(liabilities) before set-off 38,871 1,181 40,052 41,677 (1,625) Set-off DTL against DTA (1,625) 1,625 Net tax assets 38,871 1,181 40,052 40,052 Net balance at 1 July Charged to P&L Net balance at 30 June DTA DTL Employee benefits 26,614 6,877 33,491 33,491 Property, plant and equipment 1,090 88 1,178 1,178 Performance fees (7,907) 10,845 2,938 2,938 Other 1,473 (209) 1,264 1,919 (655) Tax assets/(liabilities) before set-off 21,270 17,601 38,871 39,526 (655) Set-off DTL against DTA (655) 655 Net tax assets 21,270 17,601 38,871 38,871 Recognition and measurement (i) Income tax As a State trading body under the Income Tax Assessment Act 1997, QIC Limited and its wholly-owned Australian controlled entities are exempt from Commonwealth income tax. However, pursuant to the Government Owned Corporations Act 1993 and the National Tax Equivalents Regime, the group is required to make payments to the Queensland Government, equivalent to the amount of any Commonwealth income tax for which an exemption is received. Current tax is expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the end of the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is accounted for in respect of temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and tax offsets, to the extent that it is probable that sufficient future taxable profits will be available to utilise them. (ii) Offsetting deferred tax balances Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 14
B Performance for the Year (continued) B2 Taxation (continued) Recognition and measurement (continued) (iii) Tax consolidation legislation QIC Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which limits the joint and several liability of the wholly-owned entities in the case of a default by the parent entity, QIC Limited. The group has also entered into a tax funding agreement under which the wholly-owned entities fully compensate QIC Limited for any current tax payable assumed and are compensated by QIC Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to QIC Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities financial statements. The amounts receivable/payable under the tax funding agreement are due upon payment by the parent entity of those liabilities, and subject to the parent entity providing to the wholly-owned entities satisfactory evidence of that payment, the wholly-owned entities shall promptly pay to the parent entity that contribution amount and the parent entity shall promptly pay to the relevant whollyowned entities, amounts receivable by them under the funding arrangement. Key estimates and judgements (i) Income taxes The group is subject to the National Tax Equivalents Regime in Australia and income taxes in other jurisdictions where it has foreign operations. Significant judgement is required in determining the tax related balances. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The group estimates its tax liabilities based on management s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. (ii) Recovery of deferred tax assets Deferred tax assets are only recognised for deductible temporary differences to the extent it is probable that sufficient future taxable profits will be available to utilise them. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profit. (iv) Taxation of Financial Arrangements (TOFA) Compliance with the TOFA legislation is mandatory for the tax consolidated group. The group has, apart from the foreign exchange retranslation election in relation to qualifying foreign exchange accounts, accepted the default method of accruals or realisation and has not made the election regarding transitional financial arrangements or any other elective timing methods. 15 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
C Assets and Liabilities This section provides information relating to the assets and liabilities of the group. It also provides information on the group s exposure to financial risks, how they affect the group s financial position and performance and how the risks are managed. C1 Cash and cash equivalents Cash at bank and in hand 14,123 4,492 The below figures reconcile to the amount of cash shown in the consolidated statement of cash flows at the end of the financial year as follows: Notes Cash and cash equivalents 14,123 4,492 Investment in QIC Cash Enhanced Fund C5 65,275 91,194 Investment USD investment account 1,301 Balance per consolidated statement of cash flows 80,699 95,686 Recognition and measurement (i) Cash and cash equivalents For the purposes of these financial statements, cash and cash equivalents includes cash on hand and other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. Cash and cash equivalents include balances in relation to investments in the QIC Cash Enhanced Fund and a US dollar denominated investment account. These investments are readily able to be converted to cash on call and are highly liquid. (ii) Fair value The carrying amount for cash assets equals the fair value. The weighted average interest rate for cash and cash equivalents was 1.43% (: 1.66%). The group s exposure to liquidity risk is discussed in Note C13(c). (iii) Amounts held in trust An amount held in trust of $2.7 million (: $2.9 million) was recognised in cash and cash equivalents as at. These monies are recovered funds held on behalf of QIC clients in the group s capacity as trustee. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 16
C Assets and Liabilities (continued) C2 Reconciliation of cash flow from operating activities Profit after income tax 61,089 62,424 Distribution income reinvested (2,261) (890) (Gain)/loss on financial assets at fair value through profit or loss (3,653) 151 Fair value gains on other assets (131) (98) Interest income reinvested (86) (93) Depreciation and amortisation 6,355 5,860 Net loss on disposal of non-current assets 95 30 Net exchange differences (230) Change in operating assets and liabilities: Net change in receivables (5,081) (24,798) Net change in prepayments (3,143) 570 Net change in deferred tax assets (1,181) (17,601) Net change in payables (2,880) 8,381 Net change in provisions (536) (626) Net change in employee benefits (6,299) 13,237 Net change in income tax receivable (557) (500) Net change in income tax payable (18,099) (6,833) Net change in deferred income 11,018 3,891 Net cash provided by operating activities 34,650 42,875 17 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
C Assets and Liabilities (continued) C3 Receivables Management, performance and other fees receivable 135,803 131,545 Total current receivables 135,803 131,545 Loan receivable 835 Total non-current receivables 835 Recognition and measurement (i) Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance date which are classified as non-current assets. Due to the short-term nature of these financial rights, their carrying amounts are estimated to represent their fair values. (ii) Past due but not impaired Collectability of receivables is reviewed on an ongoing basis. Debts that are known to be uncollectable are written off. An allowance account (provision for impairment of receivables) is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. There were no impairment amounts at (: $nil). As at, receivables of $3.8 million (: $4.5 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of receivables is as follows: Within trading terms 31 60 Days overdue 61 90 Over 90 132,047 2,292 629 835 127,048 838 2,667 992 No collateral is held over these balances. The group has not provided against overdue balances as there has not been a significant change in credit quality and these amounts are still considered recoverable. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 18
C Assets and Liabilities (continued) C4 Held-to-maturity investments Newpin Queensland Social Benefit Bonds 300 Total held-to-maturity investments 300 The Newpin Queensland Social Benefit Bond is structured to return fixed interest payments each year at 30 September from 2018 to 2024 at 2% of principal. A performance interest payment at 30 September 2024 will be determined by the success of the program. Repayment of the principal at maturity date is subject to a minimum of 50% and maximum of 100% depending on the success of the program. Recognition and measurement The group classifies investments as held-to-maturity if: they are non-derivative financial assets they are quoted in an active market they have fixed or determinable payments and fixed maturities the group intends to, and is able to, hold them to maturity. Held to maturity investments are initially measured at cost and are subsequently measured at amortised cost using the effective interest method. If there is objective evidence that the investment is impaired, determined by reference to external credit ratings, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognised in profit or loss. 19 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
C Assets and Liabilities (continued) C5 Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss (FVTPL) are all held for trading and include the following: Investment QIC Cash Enhanced Fund 65,275 91,194 Investment multiple products (deferred remuneration) 27,179 20,034 Investment USD investment account 1,301 Total current financial assets at FVTPL 93,755 111,228 Investment QIC Growth Fund 38,225 Investment QIC Global Infrastructure Fund 9,413 8,615 Investment QIC Direct Opportunities Fund 5,156 3,000 Investment QIC Infrastructure Portfolio 10,701 Investment GFI Absolute Return Bond Fund 2,086 2,077 Investment QIC Private Equity Fund No. 4 181 179 Investment QIC US Shopping Centre Fund 140 Investment Lonsdale Operations Hold Trust 469 Investment Lonsdale Asset Hold Trust 1,568 Investment Golden Reef Infrastructure Trust Total non-current financial assets at FVTPL 29,714 52,096 Changes in fair values of financial assets at FVTPL are recorded in the consolidated profit or loss. The group has the following investment commitments that are still to be funded: Investment Amount QIC US Shopping Centre Fund 12,881 QIC Global Infrastructure Fund 10,667 Golden Reef Infrastructure Trust 4,029 QIC Direct Opportunities Fund 1,203 QIC Private Equity Fund No. 6 130 28,910 Recognition and measurement A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or if so designated on acquisition. A financial asset is designated if there exists the possibility it will be sold in the short term or the asset is subject to frequent changes in fair value. Assets in this category are classified as current assets if they are either cash assets or are expected to be realised within 12 months of the balance date, otherwise they are classified as non-current. The group s holding in financial assets held at FVTPL is limited to holdings in products managed by the group. The fair value of these holdings was based on the unit price of the relevant trust at the reporting date. The unit price is derived based on observable market data for underlying investments held by the trust. Accordingly, the group and parent entity classify financial assets at FVTPL as level 2 and level 3. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 20
C Assets and Liabilities (continued) C6 Other financial assets Monies held in escrow 2,195 5,071 Other financial assets 148 136 Total other financial assets 2,343 5,207 Funds are held in an escrow account to fund capital calls in relation to a joint venture with a client. This money is restricted for use under the terms of the agreement. C7 Property, plant and equipment Office equipment, furniture and fittings Computer equipment Assets in the course of construction Total Carrying amount as at 1 July 10,827 1,881 269 12,977 Additions 2,183 3,215 5,398 Depreciation expense (2,769) (1,478) (4,247) Disposals at net book value (130) (47) (177) Reclassifications at net book value (1) 269 (269) Net foreign currency exchange differences in net book value (79) (13) (92) Closing net book value at 10,301 3,558 13,859 Cost or fair value 29,171 10,699 39,870 Accumulated depreciation (18,870) (7,141) (26,011) Net book amount 10,301 3,558 13,859 Carrying amount as at 1 July 2015 12,702 2,329 15,031 Additions 999 841 269 2,109 Depreciation expense (2,816) (1,249) (4,065) Disposals at net book value (2) (34) (36) Net foreign currency exchange differences in net book value (56) (6) (62) Closing net book value at 30 June 10,827 1,881 269 12,977 Cost or fair value 28,094 9,991 269 38,354 Accumulated depreciation (17,267) (8,110) (25,377) Net book amount 10,827 1,881 269 12,977 (1) Refers to the reclassification of fitout from work in progress to property, plant and equipment 21 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
C Assets and Liabilities (continued) C7 Property, plant and equipment (continued) Recognition and measurement The cost of an asset is measured as the fair value of the assets given or liabilities incurred at the date of exchange plus costs directly attributable to the acquisition. The carrying value of an asset is measured as the cost of the asset minus depreciation. Items of property, plant and equipment with a cost in excess of $1,000 are capitalised in the year of acquisition. Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is the higher of the asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). An impairment loss is recognised for the amount by which the asset s carrying amounts exceeds its recoverable amount. All items of property, plant and equipment have limited useful lives and are depreciated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives. Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed. The estimated useful lives used to calculate the depreciation rate for each class of asset are as follows: Computer equipment Office equipment, furniture and fittings 3 8 years 3 15 years An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. C8 Intangible assets Computer software Intangible assets in the course of construction Total Carrying amount as at 1 July 3,950 4,464 8,414 Additions 323 5,686 6,009 Amortisation charge (2,108) (2,108) Reclassifications at net book value (1) 4,491 (4,491) Closing net book value at 6,656 5,659 12,315 Cost 25,457 5,659 31,116 Accumulated amortisation (18,801) (18,801) Net book amount 6,656 5,659 12,315 Carrying amount as at 1 July 2015 5,340 333 5,673 Additions 58 4,478 4,536 Amortisation charge (1,795) (1,795) Reclassifications at net book value (1) 347 (347) Closing net book value at 30 June 3,950 4,464 8,414 Cost 21,192 4,464 25,656 Accumulated amortisation (17,242) (17,242) Net book amount 3,950 4,464 8,414 (1) Refers to the reclassification of software from work in progress to Intangible assets QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 22
C Assets and Liabilities (continued) C8 Intangible assets (continued) Recognition and measurement (i) Intangible assets Intangible assets of the group comprise purchased software and internally developed software. Intangible assets with a historical cost or other value equal to or greater than $1,000 are recognised in the financial statements. Items of a lesser value are expensed. Software maintenance costs are expensed as incurred. The group carries software assets at cost less amortisation and impairment losses, if any. The estimated useful lives used to calculate the amortisation rate for computer software is 3 6 years. Internal and external costs directly incurred in the purchase or development of computer applications, including subsequent upgrades and enhancements, are capitalised where the costs exceed $100,000. Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation are not capitalised. (ii) Impairment of assets Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Intangible assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. C9 Payables Accrued expenses 16,221 17,476 Accounts payable 8,238 9,863 Total payables 24,459 27,339 Recognition and measurement (i) Payables Payables are recognised when the group becomes obliged to make future payments resulting from the purchase of goods and services. (ii) Fair value Due to the short term nature of these financial obligations, their carrying amounts are estimated to represent their fair values. 23 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
C Assets and Liabilities (continued) C10 Borrowings Borrowings 100 Total borrowings 100 (i) Bank overdraft QIC Limited had an overdraft facility with a limit of $10.0 million. The facility was not drawn upon during the year and was cancelled on 11 July. (ii) Borrowings QIC Limited has a debt facility with a limit of $50.0 million. (iii) Compliance with loan covenants QIC Limited has complied with the financial covenants of its borrowing facilities during the reporting period. Recognition and measurement Borrowings are initially recognised at fair value, plus any transaction costs directly attributable to the borrowings, then subsequently held at amortised cost using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of a financial instrument (or, when appropriate, a shorter period) to the net carrying amount of that instrument. The fair value of borrowings subsequently measured at amortised cost is set out in Note C13(d)(ii). Any borrowing costs are added to the carrying amount of the borrowing to the extent they are not settled in the period in which they arise. Borrowings are split between current and non-current liabilities using the principles set out in Section A - Basis of Preparation. C11 Contingent liabilities Contingent liabilities for which no provisions are included in these financial statements are as follows: (i) Trustee obligations As at, QIC Limited or its controlled entities were trustee of 150 trusts (the Trusts ). The trustee is potentially liable for liabilities of the Trust. However, under the Trust Deeds, each trustee is entitled to be indemnified out of the assets of the Trust against any losses or outgoings sustained in its role as trustee, provided the trustee has acted within the terms of the Trust Deed. As at, total assets exceed total liabilities in the majority of the Trusts. The directors have assessed the recoverable amounts of the assets of the trusts and concluded that the trusts have excess assets over liabilities and accordingly the group has not recorded any liability in its financial statements. In addition, the parent entity operates discrete portfolios on behalf of particular clients. The investments comprising each portfolio are owned by each particular client. In accordance with client agreements governing discrete portfolios, clients are obligated to provide funds to the parent entity to cover any losses or outgoings sustained in operating their particular portfolio(s). Funds managed by the group in a trustee capacity totalled $82.0 billion at (: $75.8 billion). These figures exclude cross holdings between trusts. (ii) Litigation Litigation is in progress involving the parent entity and certain of its controlled entities, in their capacity as trustee, in relation to disputes pertaining to property, leasing and management activities. The parent entity and its controlled entities are pursuing and/or defending the actions. It is not possible to reliably estimate the financial effects, if any. Throughout the year the group was defending an action brought against it as the trustee of a trust that has since been vested. The proceedings are now complete and no liability exists. The matter was dismissed. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 24
C Assets and Liabilities (continued) C12 Commitments (i) Capital commitments There are no capital and expenditure commitments contracted for but not provided in the statement of financial position of the group. (ii) Investment commitments Refer to note C5 for investment commitments that are still to be funded. (iii) Non-cancellable operating leases The group leases various offices and motor vehicles under non-cancellable operating leases. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year 13,561 12,561 Later than one year but not later than five years 11,600 20,419 Later than five years 434 51 25,595 33,031 The group has sublet some leased office space. At, the total of future minimum sublease payments expected to be received under non-cancellable subleases was $3.0 million (: $5.1 million). Recognition and measurement Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of profit or loss and other comprehensive income on a straight-line basis over the period of the lease. 25 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
C Assets and Liabilities (continued) C13 Financial risk management The group s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk and liquidity risk. The group s financial risk management activities focus on minimising potential adverse effects of financial risks on the financial performance of the group. The group uses different methods to measure the different types of financial risk to which it is exposed. For the purposes of financial statements disclosures, these methods include sensitivity analysis in the case of foreign exchange and price risks and ageing analysis for credit and liquidity risks. The responsibility for operational risk management resides with each of the business units within the group and is supported by a central compliance and risk management group, which ensures consistency and oversight in line with policies approved by the board of directors. (a) Market risk Market risk is the risk of loss arising from movements in market variables, including observable variables such as interest rates, exchange rates and equity markets, and indirectly observable variables such as volatilities and correlations. Market risk for the group primarily arises from foreign exchange risk in relation to foreign currency intercompany loans and holdings in foreign subsidiaries and price risk in relation to investments in unit trusts held by the group. (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the group s functional currency. The risk is measured using sensitivity analysis. Losses in value may result from translating the group s capital invested in overseas operations into Australian dollars at balance date (translation risk) or from adverse foreign currency exchange rate movements on specific cash flow transactions (transaction risk). Sensitivity The sensitivity of the group s financial instruments held at 30 June (and in the prior year) to movements in the British pound, Euro and United States dollar with all other variables held constant has been assessed and is not material. The group s exposure to other foreign exchange movements is not material. (ii) Cash flow and fair value interest rate risk The group s main interest rate risk arises from long-term borrowings with variable rates, which expose the group to cash flow interest rate risk. Group policy is to maintain at least 50% of its borrowings at a fixed rate once outstanding debt is above $10 million. During, the group s borrowings at variable rate were denominated in Australian dollars. Sensitivity The sensitivity of the group s long-term borrowings held at 30 June to movements in the interest rate with all other variables held constant has been assessed and is not material. (iii) Price risk Exposure The group is exposed to price risk. This arises from investments in unit trusts held by the group and classified in the consolidated statement of financial position as financial assets at FVTPL. The group is not exposed to any other price risk. Price risk incorporates market risk, interest rate risk and foreign exchange risk in respect of investments in unit trusts. Investments in unlisted unit trusts are recorded at redemption value per unit as reported by the manager of the trust. The market risk of an investment holding comprises the risk that the unit price of the trust will change during the next reporting period (price risk). The change in unit price is determined by dividing the hypothetical change in the net asset value ( NAV ) of the trust by the number of units on issue at balance date. The hypothetical change in the NAV was determined by undertaking a sensitivity analysis for the key types of market risk that apply to the investments of that trust and aggregating the results of the analysis. The group does not hedge the capital invested in overseas operations, thereby accepting the foreign currency translation risk on invested capital. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 26
C Assets and Liabilities (continued) C13 Financial risk management (continued) (a) Market risk (continued) (iii) Price risk (continued) Sensitivity The table below summaries the impact of increases/decreases in unit prices on the group s profit for the year. Impact on post-tax profit QIC Growth Fund increase N/A (: 9%) 3,447 QIC Growth Fund decrease N/A (: 9%) (3,447) QIC Infrastructure Portfolio increase 10% (: N/A) 1,070 QIC Infrastructure Portfolio decrease 10% (: N/A) (1,070) QIC Direct Opportunities Fund increase 20% (: 18%) 1,031 555 QIC Direct Opportunities Fund decrease 18% (: 18%) (928) (555) QIC Global Infrastructure Fund increase 10% (: 10%) 941 862 QIC Global Infrastructure Fund decrease 10% (: 10%) (941) (862) Lonsdale Asset Hold Trust increase 10% (: N/A) 157 Lonsdale Asset Hold Trust decrease 10% (: N/A) (157) GFI Absolute Return Bond Fund EUR increase 3% (: 6%) 63 125 GFI Absolute Return Bond Fund EUR decrease 3% (: 6%) (63) (125) Lonsdale Operations Hold Trust increase 10% (: N/A) 47 Lonsdale Operations Hold Trust decrease 10% (: N/A) (47) QIC US Shopping Centre Fund increase 21% (: N/A) 29 QIC US Shopping Centre Fund decrease 18% (: N/A) (25) QIC Private Equity Fund No. 4 USD increase 21% (: 20%) 24 22 QIC Private Equity Fund No. 4 USD decrease 19% (: 20%) (21) (22) QIC Private Equity Fund No. 4 EUR increase 21% (: 20%) 13 13 QIC Private Equity Fund No. 4 EUR decrease 19% (: 20%) (12) (13) QIC Private Equity Fund No. 4 AUD increase 10% (: 10%) 1 QIC Private Equity Fund No. 4 AUD decrease 10% (: 10%) (1) Golden Reef Infrastructure Trust increase N/A (: N/A) Golden Reef Infrastructure Trust decrease N/A (: N/A) A sensitivity analysis was conducted on the impact of a movement in the unit price of the group s investments in current financial assets at FVTPL held at (and in the prior year), with all other variables held constant, which indicated that the price risk is not material. Sensitivity analysis was not conducted for the group s investments in Golden Reef Infrastructure Trust. No investments were held by the Golden Reef Infrastructure Trust as at. 27 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
C Assets and Liabilities (continued) C13 Financial risk management (continued) (b) Credit risk (i) Risk management Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, deposits with banks and credit exposures to wholesale investment clients, including outstanding receivables. Deposits with banks are held only with independently rated parties. The carrying amount of financial assets represents the maximum exposure to credit risk. The maximum exposure to credit risk at the reporting date for the group is $276.9 million (: $304.6 million). The group seeks to limit its exposure to credit risk in terms of outstanding trade receivables, by dealing with reputable wholesale investment clients and by ensuring that a high percentage of clients pay their management fees via unit redemption on a monthly basis within an agreed timeframe. Where the group has a significant concentration of credit risk, this is only in relation to clients that are part of the Queensland Government. (ii) Guarantees Credit risk further arises in relation to financial guarantees given to certain parties (see note C11). Such guarantees are provided in limited circumstances. (c) Liquidity risk Liquidity risk is the risk that the group will not be able to meet its cash outflows as they fall due because of lack of liquid assets. The group invests its working capital in the QIC Cash Enhanced Fund, which is highly liquid. (d) Fair value measurements (i) Fair value hierarchy This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its financial instruments into the levels prescribed under the accounting standards. An explanation of each level follows underneath the table. Fair value measurements At Notes Level 1 Level 2 Level 3 Total Financial assets Financial assets at FVTPL Unlisted unit trusts C5 95,841 27,628 123,469 Monies held in escrow account C6 2,195 2,195 Total financial assets 2,195 95,841 27,628 125,664 Fair value measurements At 30 June Notes Level 1 Level 2 Level 3 Total Financial assets Financial assets at FVTPL Unlisted unit trusts C5 163,324 163,324 Monies held in escrow account C6 5,071 5,071 Total financial assets 5,071 163,324 168,395 The group s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting year. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 28
C Assets and Liabilities (continued) C13 Financial risk management (continued) (d) Fair value measurements (continued) (i) Fair value hierarchy (continued) Some of the group s investments have been transferred from level 2 to level 3 on due to a number of unobservable inputs used to determine the valuation. Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. (ii) Fair value disclosures for financial liabilities measured at amortised cost The fair value of the borrowings are not materially different to their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. All other financial assets and financial liabilities held by the group are measured at cost, which equates to fair value. 29 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
D Employee Benefits This section provides a breakdown of the various programs the group uses to reward and recognise employees and key executives, including Key Management Personnel (KMP). D1 Employee benefits Payables 24,036 22,343 Provisions 60,359 59,507 Total current employee benefits 84,395 81,850 Provisions 23,334 32,178 Total non-current employee benefits 23,334 32,178 Recognition and measurement (i) Employee benefits The employee benefits liability represents accrued wages and salaries, leave entitlements and other incentives recognised in respect of employees services up to the end of the reporting period. These liabilities are measured at the amounts expected to be paid when they are settled and include related on-costs, such as workers compensation insurance, superannuation and payroll tax. Remuneration includes a mix of fixed remuneration and payments for performance, attraction and retention. The majority of these payments are dependent on the satisfaction of performance conditions and are defined as at risk. The maximum at risk amount payable varies with individual roles to the extent that each role impacts on investment and corporate performance. A liability for payments for performance, attraction and retention is recognised when the group has a present obligation to pay resulting from employee services provided. No provision for sick leave benefits has been made as benefits do not vest with employees. (ii) Short-term employee benefits Short-term employee benefits include salaries, annual leave, paid sick leave, at risk performance and retention compensation and any non-monetary benefits provided such as cars or car parking. (iii) Long-term employee benefits Long-term employee benefits includes long service leave accrued and at risk long term performance and retention compensation. The obligations are presented as current liabilities in the consolidated statement of financial position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. All other obligations are presented as non-current liabilities. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 30
D Employee Benefits (continued) D1 Employee benefits (continued) (iv) Post-employment benefits Post-employment benefits include superannuation contributions. The group contributes to superannuation funds for the purpose of providing benefits for employees and their dependents on retirement, disability or death. Contributions are charged as expenses when incurred. In relation to contributions to the QSuper defined benefit plan, employer contributions for superannuation are as determined by the Treasurer on the advice of the State Actuary. No liability is shown for superannuation benefits in the statement of financial position, as the liability is held on a Whole of Government basis and reported in the Whole of Government financial statements prepared in accordance with AASB 1049 Whole of Government and General Government Sector Financial Reporting. (v) Termination benefits Termination benefits are payable when employment is terminated by the group before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of AASB 137 Provisions, Contingent Liabilities and Contingent Assets and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. Key estimates and judgements (i) Annual leave and long service leave Annual leave and long service leave benefits have been measured at the present value of the estimated future cash outflows resulting from services rendered by employees at balance date. This calculation requires judgement in determining the following key assumptions: Future increase in wages and salary rates; Future on-cost rates; and Expected settlement dates based on staff turnover history. Employee benefits that are not wholly expected to be settled within 12 months are discounted using the rates attached to high quality Australian corporate bonds at balance date, which most closely match the terms of maturity of the related liability. (ii) At-risk performance, attraction and retention A number of factors could impact the amounts eventually paid, including: Finalisation of corporate performance Finalisation of employees performance reviews Final approval by the board Employee remaining in service to the date of payment Change in accounting estimate (i) At risk long term performance compensation During the period, the method of calculating at risk performance, attraction and retention compensation was reviewed. Management are of the view that using the benefit formula approach will provide a better reflection of the nature of the expense and this has been applied as a change in accounting estimate. The benefits formula approach attributes an even portion of the award to each year of the relevant vesting period as an expense. In the prior years, the entire award was recognised as an expense and liability at the end of each financial year. The impact of this chance in accounting estimate on the statement of profit and loss is a decrease in expense of $11.8 million and a corresponding decrease in liability of $11.8 million on the statement of financial position. 31 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
D Employee Benefits (continued) D2 Key management personnel Key management personnel disclosures are made in accordance with the Supplementary Requirements for Disclosure of Government Owned Corporation Directors and Chief and Senior Executives Remuneration issued by the Queensland Government. Key management personnel include both directors and senior executives who have authority and responsibility for planning, directing and controlling the activities of the group. The group s shareholding Ministers are identified as part of the group s KMP, consistent with AASB 124 Related Party Disclosures. These Ministers are the Honourable Annastacia Palaszczuk MP, Premier and Minister for the Arts and the Honourable Curtis Pitt MP, Treasurer, Minister for Trade and Investment and Acting Minister for Energy, Biofuels and Water Supply. (a) Directors The following persons were directors of QIC Limited for the whole of the current and prior financial year, except where indicated otherwise below: Director Position Term Expiry date D R Luke (1) Chairman (reappointed 1 October ) 3 years 30 September 2019 J C Battams (2) Director (appointed 1 October 2015) 3 years 30 September 2018 G Brown (3) Director (appointed 15 December ) 3 years 30 September 2019 S A Desmarchelier (4) Director (appointed 1 October ) 3 years 30 September 2019 S J P Dunne (5) Director (appointed 12 May ) 2 years 30 September 2018 P A Gallagher (6) Director (appointed 11 December 2014) 3 years 30 September A E King (1) Director (reappointed 1 October ) 3 years 30 September 2019 G B Murdoch (7) Director (reappointed 2 October 2014) 3 years 30 September A J P Staines (2) Director (appointed 1 October 2015) 3 years 30 September 2018 B C Bowton Director (term ended 30 September ) 3 years 30 September G M Pemberton Director (term ended 30 September ) 3 years 30 September M L Newman AC Director (term ended 30 September 2015) 1 years 30 September 2015 Notes: (1) Previous term ended on 30 September. Term of appointment: from 1 October to 30 September 2019, 3 years. (2) Term of appointment: from 1 October 2015 to 30 September 2018, 2 years, 11 months. (3) Term of appointment: from 15 December to 30 September 2019, 2 years, 9 months and 17 days. (4) Term of appointment: from 1 October to 30 September 2019, 3 years. (5) Term of appointment: from 12 May to 30 September 2018, 2 years, 4 months and 20 days. (6) Term of appointment: from 11 December 2014 to 30 September, 2 years, 9 months and 20 days. (7) Previous term ended on 30 September 2014. Term of appointment: from 2 October 2014 to 30 September, 2 years, 11 months and 29 days. (b) Senior Executives Senior executives are appointed by the QIC Board. The Chief Executive is appointed by the QIC Board with the prior written approval of the shareholding Ministers. During the current and prior financial year, the following persons were senior executives with the greatest authority for the strategic direction and management of the group ( senior executives ): Director Position Term D J Frawley Chief Executive Open term C M Blake Executive Director, Finance Open term D E Clarke Executive Director, Risk, Legal and Tax Open term B J Delaney Executive Director, Strategy, Clients and Global Markets Open term G A Jackson Executive Director, Human Resources Open term M D McDonald Executive Director, Operations and Technology Open term A C Ryder Chief Investment Officer (to 19 February ) Open term QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 32
D Employee Benefits (continued) D2 Key management personnel (continued) (c) Remuneration principles (i) Remuneration of shareholding Ministers Ministerial remuneration entitlements are outlined in the Legislative Assembly of Queensland s Members Remuneration Handbook. The group does not bear any cost of remuneration of Ministers. The majority of Ministerial entitlements are paid by the Legislative Assembly, with the remaining entitlements being provided by Ministerial Services Branch within the Department of the Premier and Cabinet. As all Ministers are reported as KMP of the Queensland Government, aggregate remuneration expenses for all Ministers is disclosed in the Queensland General Government and Whole of Government Consolidated Financial Statements as from -, which are published as part of Queensland Treasury s Report on State Finances. (ii) Remuneration of directors The Governor in Council of the State of Queensland determines the group s directors fees. Directors receiving directors fees personally also receive the statutory superannuation contributions. All directors are reimbursed for reasonable expenses incurred while conducting business on behalf of the group. Directors are not entitled to performance based incentive payments and retirement benefits. (iii) Remuneration of senior executives and employees Governance of remuneration practices and arrangements occurs through the HR and Remuneration Committee, which oversees all remuneration policies and their implementation. The Committee refers its recommendations relating to remuneration to the QIC Board for approval. The majority of the group s employees are sourced from the various financial markets and investment sectors in which the group participates. It is important that the group s employment practices are competitive within these markets. Effective remuneration strategies are an essential element in the group s ability to attract and retain investment professionals and other key employees and to ensure their effectiveness in achieving agreed performance benchmarks. Analysis and advice is obtained from external consultants to ensure that remuneration is benchmarked against market rates for comparable roles. In addition, a number of surveys are used to assess market rates and trends. Remuneration is reviewed at least annually to ensure that it is competitive within the funds management industry. Fixed remuneration is calculated on a total cost basis, including the cost of employee benefits such as motor vehicles, superannuation and car parking, together with fringe benefits tax applicable to those benefits. Fixed remuneration levels are targeted at the market median, taking into consideration relevant market trends. Redundancy payments are not provided for within individual contracts of employment. Contracts of employment provide only for notice periods or payment in lieu of notice on termination, regardless of the reason for termination. The group may, at its discretion, provide retrenchment payments consistent with industry practice. (iv) At risk performance, attraction and retention compensation These payments are dependent on the satisfaction of performance conditions and are defined as at risk. The maximum at risk amount payable varies with individual roles to the extent that each role impacts on investment and corporate performance. The components of the calculation reflect business objectives and are drawn from the following as appropriate: Financial performance, including profitability and revenue growth Investment performance, client satisfaction and client retention Process, risk and systems management and business improvements Leadership and culture, including employee engagement, capability management and collaboration In addition, the QIC Board may exercise its discretion to make performance based payments to additional employees who are not participants in incentive schemes. (v) Remuneration of key management personnel Short-term employee benefits 7,064 7,774 Long-term benefits 1,127 2,236 Post-employment benefits 315 371 Termination benefits 150 8,506 10,531 Key management personnel remuneration includes the remuneration of directors and senior executives specified in this note for the periods indicated. Long term at risk performance based benefits included above are subject to the change in accounting estimate as disclosed in Note D1. The group has established a remuneration structure to motivate superior employee performance in order to achieve the organisation s short term performance objectives, to provide sustainable long term performance outcomes for the group and alignment with client and shareholder interests. 33 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
D Employee Benefits (continued) D2 Key management personnel (continued) (vi) Remuneration of directors Directors Name Position Reporting Period 1 July QIC $ Board of Board Committees Board Committees $ Subsidiary boards $ Short-term employee benefits Post- Employment D R Luke (1) Chairman 161,995 161,995 15,795 177,790 J C Battams (2) Director 67,911 22,004 10,052 99,967 9,497 109,464 G Brown (3) Director 37,059 37,059 3,520 40,579 S Desmarchelier (4) Director 50,933 3,799 3,188 57,920 6,806 64,726 S J P Dunne (5) Director 67,911 11,430 10,164 89,505 8,503 98,008 P A Gallagher (6) Director 67,921 35,156 103,077 103,077 A E King (1) Director 67,911 10,052 10,052 88,015 8,361 96,376 G B Murdoch (7) Director 67,911 35,153 103,064 9,791 112,855 A J P Staines (2) Director 67,911 20,104 88,015 8,361 96,376 B C Bowton (8) Director 16,978 5,026 2,513 24,517 2,329 26,846 G M Pemberton (9) Director 16,978 8,796 25,774 2,448 28,222 P W Forbes (10) Director 67,911 67,911 6,452 74,363 A C J Solway (10) Director 50,245 50,245 4,404 54,649 P J Higgs (11) Director 50,245 50,245 4,404 54,649 Total remuneration 691,419 151,520 204,370 1,047,309 90,671 1,137,980 Previous Period 1 July 2015 30 June D R Luke (1) Chairman 161,995 161,995 15,795 177,790 J C Battams (2) Director 50,933 7,510 2,373 60,816 5,778 66,594 S J P Dunne (5) Director 9,310 9,310 884 10,194 P A Gallagher (6) Director 67,912 19,430 87,342 87,342 A E King (1) Director 67,911 10,052 10,052 88,015 8,361 96,376 G B Murdoch (7) Director 67,911 22,578 90,489 8,596 99,085 A J P Staines (2) Director 50,933 7,510 58,443 5,552 63,995 B C Bowton (8) Director 67,911 13,807 10,052 91,770 8,718 100,488 M L Newman AC (12) Director 16,978 2,513 19,491 1,852 21,343 G M Pemberton (9) Director 67,911 25,737 93,648 8,897 102,545 P W Forbes (10) Director 67,911 67,911 6,452 74,363 A C J Solway (10) Director 56,585 56,585 5,697 62,282 P J Higgs (11) Director 56,585 56,585 5,697 62,282 Total remuneration 629,705 109,137 203,558 942,400 82,279 1,024,679 Total $ Super $ Total $ Notes: (1) Reappointed 1 October. Previous term ended 30 September. (2) Appointed 1 October 2015. Chair of the Risk Committee from 14 February. (3) Appointed 15 December. (4) Appointed 1 October. (5) Appointed 12 May. (6) Appointed 11 December 2014. Chair of the HR and Remuneration Committee. (7) Reappointed 2 October 2014. Previous term ended 30 September 2014. Chair of the Audit Committee. Interim Chair of the Risk Committee from 1 October to 13 February. (8) Appointed 1 October 2015. (9) Term ended 30 September. Chair of the Risk Committee from 1 July 2015 to 30 September. (10) Director of QIC Limited subsidiary companies only. (11) Appointed 14 April 2015 and Director of QIC Limited subsidiary companies only. (13) Term ended 30 September 2015. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 34
D Employee Benefits (continued) D2 Key management personnel (continued) (vi) Remuneration of directors (continued) Senior Executives Name Position Short-term employee benefits Salary and fees $ Nonmonetary benefits $ Postemployee benefits Super $ Other long-term benefits Termination benefits Total remuneration (excluding at-risk performance incentive) Annual and long service leave $ $ $ Reporting Period 1 July D J Frawley Chief Executive 705,603 8,564 35,833 37,396 787,396 C M Blake Executive 297,544 24,409 90,547 7,132 419,632 Director,Finance D E Clarke Executive Director, 392,884 19,616 21,340 433,840 Risk,Legal and Tax B J Delaney Executive Director, 529,406 22,308 28,286 28,239 608,239 Strategy, Clients and Global Markets G A Jackson Executive Director, 311,038 13,654 30,308 20,238 375,238 Human Resources M D McDonald Executive Director, 380,384 19,616 12,593 412,593 Operations and Technology Total remuneration 2,616,859 68,935 224,206 126,938 3,036,938 Previous Period 1 July 2015 30 June D J Frawley Chief Executive 706,374 8,101 35,525 1,786 751,786 C M Blake Executive 298,134 23,819 90,547 245 412,745 Director,Finance D E Clarke Executive Director, 393,192 19,308 17,253 429,753 Risk,Legal and Tax B J Delaney Executive Director, 534,038 10,962 35,000 4,959 584,959 Strategy, Clients and Global Markets G A Jackson Executive Director, 258,461 11,539 30,000 2,352 302,352 Human Resources M D McDonald Executive Director, 380,692 19,308 23,394 423,394 Operations and Technology A C Ryder Chief Investment 310,979 58,664 (14,014) 150,000 505,629 Officer Total remuneration 2,881,870 54,421 288,352 35,975 150,000 3,410,618 35 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
D Employee Benefits (continued) D2 Key management personnel (continued) (vii) Total performance and retention remuneration Aggregate amounts for performance and retention of employees () 57,580 70,886 Aggregate remuneration (including the amounts above) for employees to whom such amounts are paid, payable or provided () 155,578 153,556 Number of employees who receive payments for performance and retention purposes 635 543 Long term at risk performance based benefits included above are subject to the change in accounting estimate as disclosed in Note D1. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 36
E Capital Structure This section provides information relating to the group capital structure. The capital structure of the group consists of debt and equity. The directors review the group s capital structure and dividend policy regularly and do so in the context of the group s ability to continue as a going concern, to invest in opportunities that grow the business and enhance shareholder value. E1 Issued capital Shares Shares Ordinary shares 30,300,000 30,300,000 37,475 37,475 (i) Movements in ordinary share capital There were no movements in the share capital of the group in the current and prior years. (ii) Risk management The group s capital management objectives are to: ensure sufficient capital resources to support business and operating requirements and manage risks; and continue to provide a return to the State of Queensland and benefits for other stakeholders. Capital levels are monitored and assessed on a regular basis to ensure that these objectives are met. The group is not currently subject to any legal or other regulatory requirement to have a capital base of any specific size. E2 Dividends (i) Ordinary shares Final dividend for the year ended of 100% (: 100%) of adjusted consolidated profit after income tax 41,089 62,424 Recognition and measurement Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the group, on or before the end of the financial year but not distributed at balance date. E3 Retained earnings Movements in retained earnings were as follows: Balance as at 1 July 95,440 95,440 Profit after income tax 61,089 62,424 Dividends (41,089) (62,424) Balance as at 30 June 115,440 95,440 37 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
F Group Structure This section explains significant aspects of QIC Limited s group structure, including its controlled entities. It also provides information relating to QIC Limited s related parties, the extent of related party transactions and the impact they had on the group s financial performance and position. F1 Parent entity disclosures The ultimate parent entity within the group is QIC Limited. QIC Limited is a Queensland Government Owned Corporation, with all shares held by shareholding Ministers on behalf of the State of Queensland. All State of Queensland controlled entities meet the definition of related parties of QIC Limited. (i) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance sheet Current assets 231,333 251,403 Non-current assets 55,143 91,089 Total assets 286,476 342,492 Current liabilities 132,944 205,423 Non-current liabilities 11,882 15,686 Total liabilities 144,826 221,109 Equity Contributed equity 37,475 37,475 Retained earnings 104,175 83,908 Total equity 141,650 121,383 Profit after income tax 61,355 62,423 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 38
F Group Structure (continued) F1 Parent entity disclosures (continued) (ii) Contingent liabilities of the parent entity On 19 September, QIC Limited withdrew the eligible undertakings for the following entities; QIC Retail Pty Ltd, QIC Infrastructure Management No. 2 Pty Ltd, QIC Investments No. 1 Pty Ltd and QIC Investments No. 3 Pty Ltd. QIC Limited has given the following eligible undertakings in respect of Australian Financial Services Licences issued to controlled entities: Entity Agreement date QIC Retail Pty Ltd 27 February 2015 $3.5 million QIC Private Capital Pty Ltd 28 July 2015 $3.0 million $3.0 million QIC Infrastructure Management No. 2 Pty Ltd 27 June $1.0 million QIC Investments No. 1 Pty Ltd 27 June $3.0 million QIC Investments No. 3 Pty Ltd 25 June 2014 $150,000 In accordance with deed polls dated 2 February 2004 and 18 March 2005, QIC Limited has agreed to indemnify each subsidiary listed in those deed polls for liabilities incurred by the subsidiary to third parties, arising from the provision of financial services to wholesale clients in respect of dealing (including arranging for a person to deal), providing financial product advice and providing a custodial or depository service. QIC Limited has received or provided the following loan facility agreements with controlled entities: Entity Agreement date QIC European Investment Services Limited 15 May 2013 GBP 5.0 million GBP 5.0 million QIC (UK) Management Limited 15 May 2013 GBP 5.0 million GBP 5.0 million QIC US Management, Inc 15 May 2013 USD 5.0 million USD 5.0 million QIC Investments No. 1 Pty Ltd 16 July 2013 AUD 8.0 million AUD 8.0 million In accordance with the QIC (UK) Management Limited lease of 21 Holborn Viaduct, London, QIC Limited irrevocably agrees to pay the lessor any outstanding rent and make good on any damages to the premises for the term of the lease, expiring 1 February. (iii) Guarantees QIC Limited has provided a guarantee to QIC European Investment Services Limited. Under this agreement the parent entity has agreed to supply funding of up to $1.0 million. QIC Limited has provided a guarantee to QIC US Management Inc. Under this agreement the parent entity has agreed to supply funding of up to $1.0 million. QIC Limited has provided a guarantee to QIC US Investment Services Inc. Under this agreement the parent entity has agreed to supply funding of up to $1.0 million. (iv) Contractual commitments for the acquisition of property, plant or equipment As at, there are no capital and expenditure commitments contracted for but not provided in the statement of financial position of QIC Limited. 39 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
F Group Structure (continued) F1 Parent entity disclosures (continued) (v) Transactions with controlled entities The following transactions occurred with QIC Limited subsidiaries. 30 June $ 30 June $ Service fees received from controlled entities 59,471,498 66,847,769 Service fees paid to controlled entities 24,465,585 34,575,545 Amounts paid by subsidiaries under the tax funding agreement 47,212,328 29,176,413 Dividend revenue 65,916,811 63,981,776 Current receivables (loans to controlled entities) 11,607,189 921,820 Current receivables (tax funding agreement) 9,736,763 26,699,275 Current receivables (dividend revenue) 65,916,811 63,981,776 Current payables (loans from controlled entities) 49,074,120 82,444,956 No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties. Transactions with Queensland Government entities and QIC Limited investment entities are disclosed at a consolidated level, refer note F3. F2 Controlled entities The consolidated financial statements incorporate the assets, liabilities and results of the following material subsidiaries. QIC Limited has a number of other subsidiaries in the group that are non-trading and were effectively dormant during the current and prior year: Name of entity Country of incorporation Class of shares % Equity holding QIC (UK) Management Limited United Kingdom Ordinary 100 100 QIC European Investment Services Limited United Kingdom Ordinary 100 100 QIC Global Infrastructure (US), Inc. * United States Ordinary 100 100 QIC Corporate Management, Inc. ** United States Ordinary 100 100 QIC Infrastructure Management No.2 Pty Ltd Australia Ordinary 100 100 QIC Infrastructure Management Pty Ltd Australia Ordinary 100 100 QIC Investments No. 1 Pty Ltd Australia Ordinary 100 100 QIC Investments No. 2 Pty Ltd Australia Ordinary 100 100 QIC Investments No. 3 Pty Ltd Australia Ordinary 100 100 QIC Private Capital Pty Ltd Australia Ordinary 100 100 QIC Properties Pty Ltd Australia Ordinary 100 100 QIC Properties US, Inc. * United States Ordinary 100 100 QIC Retail Pty Ltd Australia Ordinary 100 100 QIC US Investment Services Inc * United States Ordinary 100 100 QIC US Management, Inc. United States Ordinary 100 100 QIC US Private Equity, LLC * United States Ordinary 100 100 QIC US Shopping Centre Fund No.1 GP LLC * United States Ordinary 100 100 * Subsidiary of QIC US Management, Inc. ** Previously called QIC GRE Management (US), Inc. % QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 40
F Group Structure (continued) F3 Related party information (i) Transactions with shareholding Ministers As a Queensland Government Owned Corporation (GOC), QIC Limited s shareholding Ministers are the Honourable Annastacia Palaszczuk MP, Premier and Minister for the Arts and the Honourable Curtis Pitt MP, Treasurer, Minister for Trade and Investment and Acting Minister for Energy, Biofuels and Water Supply. There was no income received, or due and receivable, by the shareholding Minister from the group during the year. No shareholding Minister has received or become entitled to receive any benefit by reason of a contract made by the group. The group has not made purchases or provided goods or services to/from entities or individuals related to shareholding Ministers. (ii) Transactions with key management personnel Directors of QIC Limited and Executives of the Group Transactions with entities related to key management personnel occur on terms and conditions which are no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-related entities on an arm s length basis. (iii) Transactions with other related parties The following transactions occurred with related parties: $ State of Queensland QTC Other related entities Investment management and performance fees 16,476,843 74,117,903 138,068,286 Purchase of goods and services 13,146,422 Payment of income tax 46,620,399 Payment of dividends 62,423,528 Current receivables 1,920,329 29,615,919 43,147,647 Current payables 6,474,919 Dividends payable 41,089,068 Income tax payable 415,114 $ State of Queensland QTC Other related entities Investment management and performance fees 17,287,846 82,538,161 127,413,227 Purchase of goods and services 12,681,679 Payment of income tax 47,449,848 Payment of dividends 56,488,000 Current receivables 1,665,188 40,990,964 33,711,917 Current payables 6,162,835 Dividends payable 62,423,528 Income tax payable 18,799,480 (iv) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of QIC Limited. (v) Terms and conditions There are no fixed terms for the repayment of loans between entities in the group and the loans are interest free. Outstanding balances are unsecured and are repayable in cash. All other transactions were made on normal commercial terms and conditions and at market rates. 41 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
G Other This section provides details on other required disclosures relating to the group to comply with accounting standards and other pronouncements. G1 Subsequent events There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material nature, likely to significantly affect the operations of the group, the results of those operations or the state of affairs of the group in future financial years. G2 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: $ $ Queensland Audit Office Audit and review of financial reports 295,004 304,184 Audit of regulatory returns 10,000 25,100 KPMG Audit and review of financial reports 87,861 120,265 Total remuneration for audit services 392,865 449,549 G3 New accounting standards None of the new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July affected any of the amounts recognised in the current period or any prior period and are not likely to affect future periods. QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 42
G4 Standards and interpretations issued but not yet effective Certain new accounting standards and interpretations have been published that are not mandatory for reporting periods and have not been early adopted by the group. The group s assessment of the impact of these new standards and interpretations is set out below. Other than as set out in this note, there are no other standards that are not yet effective and that are expected to have a material impact on the group in the current or future reporting periods and on foreseeable future transactions. (i) AASB 9 Financial Instruments AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting. This standard is effective for annual reporting period beginning on or after 1 January 2018 with early adoption permitted. The group has commenced reviewing the measurement of its financial assets against the new AASB 9 classification and measurement requirements. However, as the classification of financial assets at the date of initial application of AASB 9 will depend on the facts and circumstances existing at that date, the group s conclusions will not be confirmed until closer to that time. At this stage, and assuming no change in the types of transactions the group enters into, it is not expected that this standard will impact the financial statements of the group. (ii) AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion of risks and rewards. It contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. It applies to all contracts with customers except leases, financial instruments and insurance contracts. It requires reporting entities to provide users of financial statements with more informative and relevant disclosures. (iii) AASB 16 Leases AASB 16 will become effective for reporting periods beginning on or after 1 January 2019. When applied, the standard supersedes AASB 117 Leases, AASB Interpretation 4 Determining whether an Arrangement contains a Lease, AASB Interpretation 115 Operating Leases Incentives and AASB Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. AASB 16 introduces a single lease accounting model for lessees. Lessees will be required to recognise a right-of-use asset (representing rights to use the underlying leased asset) and a liability (representing the obligation to make lease payments) for all leases with a term of more than 12 months, unless the underlying assets are of low value. The right-of-use asset will be initially recognised at cost, consisting of the initial amount of the associated lease liability, plus any lease payments made to the lessor at or before the commencement date, less any lease incentive received, the initial estimate of restoration costs and any initial direct costs incurred by the lessee. The right-of-use asset will give rise to a depreciation expense. The lease liability will be initially recognised at an amount equal to the present value of the lease payments during the lease term that are not yet paid. Current operating lease rental payments will no longer be expensed in the statement of comprehensive income. They will be apportioned between a reduction in the recognised lease liability and the implicit finance charge (the effective rate of interest) in the lease. The finance cost will also be recognised as an expense. AASB 16 allows a cumulative approach rather than full retrospective application to recognising existing operating leases. If a lessee chooses to apply the cumulative approach, it does not need to restate comparative information. Instead, the cumulative effect of applying the standard is recognised as an adjustment to the opening balance of accumulated surplus (or other component of equity, as appropriate) at the date of initial application. The group is currently assessing the impact on the statement of comprehensive income and the statement of financial position of applying AASB 16 to its current operating leases stated at C12(c). At this stage the group is unable to quantify the impact of this new standard. The group is currently assessing the impact on revenue recognition and measurement. At this stage the group is determining the impact of the standard on performance fees and performance fee clawbacks. The group has reviewed all other affected contracts and has determined the standard is not expected to have a significant impact on the financial statements of the group. At this stage the group is unable to reliably quantify the impact of this new standard. 43 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE
DIRECTORS DECLARATION In the directors opinion: (a) the financial statements and notes set out on pages 5 to 43 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity s financial position as at and of its performance for the year ended on that date, and (b) there are reasonable grounds to believe that the group will be able to pay its debts as and when they become due and payable. Note A2 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. This declaration is made in accordance with a resolution of directors. Mr D R Luke Chairman Brisbane 28 August QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE 44
INDEPENDENT AUDITOR S REPORT To the members of QIC Limited Report on the Financial Report I have audited the accompanying financial report of QIC Limited, which comprises the consolidated statement of financial position at, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows for the year then ended, notes comprising of summary of significant accounting policies and other explanatory information, and the directors declaration of the consolidated entity comprising the company and the entities it controlled at the year s end or from time to time during the financial year. Directors Responsibility for the Financial Report The directors of the group are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In note A2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor s Responsibility My responsibility is to express an opinion on the financial report based on the audit. The audit was conducted in accordance with the Auditor-General of Queensland Auditing Standards, which incorporate the Australian Auditing Standards. Those standards require compliance with relevant ethical requirements relating to audit engagements and that the audit is planned and performed to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Independence The Auditor-General Act 2009 promotes the independence of the Auditor General and all authorised auditors. The Auditor-General is the auditor of all Queensland public sector entities and can be removed only by Parliament. The Auditor-General may conduct an audit in any way considered appropriate and is not subject to direction by any person about the way in which audit powers are to be exercised. The Auditor- General has for the purposes of conducting an audit, access to all documents and property and can report to Parliament matters which in the Auditor General s opinion are significant. In conducting the audit, the independence requirements of the Corporations Act 2001 have been complied with. I confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of QIC Limited, would be in the same terms if given to the directors as at the time of this auditor s report. Opinion In my opinion (a) the financial report of QIC Limited is in accordance with the Corporations Act 2001, including (b) (i) (ii) giving a true and fair view of the consolidated entity s financial position as at and of their performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and the financial report also complies with International Financial Reporting Standards as disclosed in note A2. Other Matters Electronic Presentation of the Audited Financial Report Those viewing an electronic presentation of these financial statements should note that audit does not provide assurance on the integrity of the information presented electronically and does not provide an opinion on any information which may be hyperlinked to or from the financial statements. If users of the financial statements are concerned with the inherent risks arising from electronic presentation of information, they are advised to refer to the printed copy of the audited financial statements to confirm the accuracy of this electronically presented information. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. B Worrall FCA Auditor-General of Queensland Queensland Audit Office Brisbane 45 QIC CONSOLIDATED ANNUAL AND DIRECTORS REPORT FOR THE YEAR ENDED 30 JUNE